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A recently published working paper from the San Francisco Fed shows that the fiscal multiplier of infrastructure spending is much larger than the typical government spending multiplier.

Sylvain Leduc and Daniel Wilson studied the effect of unexpected infrastructure grants on state GDPs (GSPs) since 1990 and found that, on average, each dollar of infrastructure spending increases the GSP by at least two dollars. Valerie Ramey, Professor of Economics at UC San Diego and member of the National Bureau of Economic Research, reports that the typical fiscal multiplier is between 0.5 and 1.5.

Leduc and Wilson note that their results serve as a validation of Keynesian economics:

We find that unanticipated increases in highway spending have positive but temporary effects on GSP, both in the short and medium run. The short-run effect is consistent with a traditional Keynesian channel in which output increases because of a rise in aggregate demand, combined with slow-to-adjust prices. In contrast, the positive response of GSP over the medium run is in line with a supply-side effect due to an increase in the economy’s productive capacity.

What’s more, their study showed that the multiplier increases during a downturn. Leduc and Wilson found that the multiplier in the wake of the 2009 stimulus was “roughly four times” more than average. That means infrastructure investments offer more value during busts than booms, which should encourage policymakers attempting to counteract high unemployment in the construction sector by increasing spending on highways, roads, and bridges.

Everyone who has taken an introductory economics course knows what the multiplier effect is. People still question the stimulus because it was a massive miss-allocation of taxpayer funds. Don't get me wrong, I'm not 100% opposed to the stimulus, but it wasn't implemented correctly. I wish we really had poured all that money into infrastructure. Unfortunately a lot of it went to porkbarrel spending while roads and bridges everywhere continue to fall apart.

Everyone who has taken an introductory economics course knows what the multiplier effect is. People still question the stimulus because it was a massive miss-allocation of taxpayer funds. Don't get me wrong, I'm not 100% opposed to the stimulus, but it wasn't implemented correctly. I wish we really had poured all that money into infrastructure. Unfortunately a lot of it went to porkbarrel spending while roads and bridges everywhere continue to fall apart.

It's a good thing Obama is pushing for a $50 Billion infrastructure package.

It's a good thing Obama is pushing for a $50 Billion infrastructure package.

You won't find me arguing against this. I am diametrically opposed to almost every aspect of Keynesian economics with the exception of infrastructure investment. We need it. The problem is that we already pissed away 1.4 trillion on the previous stimulus packages. Why didn't we address these problems them?

Why didn't the first stimulus go to infrastructure? Where were the shovel ready jobs? Oh, NOW we need more money for infrastructure...I guess we didn't know we should work on that back in 2009.

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The vast majority of ARRA were tax subsidies for businesses and Federal subsidies for state governments wallowing in red ink. Nobody is going to argue that the government needs to build more roads, bridges, power lines (preferably buried), repair/replace the water mains, and all that good stuff.

It's easy to say "we're launching a 100 billion dollar initiative to repair national infrastructure" or whatever. Actually doing it effectively is another matter altogether. And I have serious doubts that the Federal bureaucracy and the state legislators are capable of getting money where it's needed the most.

Can you imagine how our infrastructure would look if the trillions blown in the Middle East had been spent here?

For real. If we get rid of DoD and entitlements, we could have 1.4 trillion per year to spend on infrastructure. Or we could balance the budget. We could do a number of things without those albatrosses.

As far shovel ready goes, I was involved with two ARRA funded projects, both of which were already slated to be funded by other means. I hope to hell that there isn't another stimulus, those grants were a pain in the ass to administer.

For real. If we get rid of DoD and entitlements, we could have 1.4 trillion per year to spend on infrastructure. Or we could balance the budget. We could do a number of things without those albatrosses.

Sure, and without any capability to defend ourselves we would be perfectly safe and secure. What an idiot.

Only Americans are dumb enough to think that spending $1 of borrowed/printed money you don't have will yield $2 of actual money. Keep drinking the koolaid, some really smart professor with a wall full of diplomas said so...it must be true.

FYI......I have little argument with infrastructure projects. I far prefer my burden of taxes be used on infrastructure than anything else.

Try it at home. For every dollar you spend on your credit card see if your bank account gets fatted up by $2. Only a private enterprise can "invest money" and receive a return. When a government does it, it squanders it all. If someone posted something like "For every dollar the government spends, the nation loses two" that would make rational sense, but this idiocy? It is koolaid of the ultimate flavor. We gunna spend our way into riches!!! Worked so well everywhere else.

What the OP does not understand is that depending on the local environment, every dollar spent in the private sector will result in 4-7 dollars being spent in the total economy. So, the basis for the article is flawed from the beginning except to the uniformed.

Besides, how much of that stimulus spending improved the economy when 300m was given to Solyndra and they went bankrupt a year later ?
Another solar panel manufacturer that was a recipient of stimulus spending also went under a few weeks ago. No multiplier there.
What was the multiplier effect when Hillary channeled 4m dollars to a company in Chicago that does political surveys to hire 3 people ? Or was the stimulus just paying it forward for her 2016 campaign ?

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What the OP does not understand is that depending on the local environment, every dollar spent in the private sector will result in 4-7 dollars being spent in the total economy. So, the basis for the article is flawed from the beginning except to the uniformed.

Perhaps true (4-7 dollar assertion), but where the bulk of the federal spending goes to are inherently non-profitable (directly and/or near term) enterprises and endeavors that no private institution would ever touch with a ten foot stick. Defense is a prime example of a broad, long-term societal benefit far beyond the scope of any private enterprise. Sure, some corporation may and do hire private mercenaries, errr, contractors to protect their own limited and specific interests, but who other than the federal government is going to protect the full swath of our land, air and sea, much less protecting extra-territorial sea and air lanes and other land interests critical to our economic and even physical well being?

Sure, private entities can and do make large returns on investment on their focused and limited investments, as is their role and function, but federal "investments," if you will, can also reap significant, if more broadly dispersed in time and focus, returns on the dollar in fostering and protecting the broader functioning society within which said private enterprises can actually flourish.

Quote:

Originally Posted by Raymond42262

Besides, how much of that stimulus spending improved the economy when 300m was given to Solyndra and they went bankrupt a year later ?
Another solar panel manufacturer that was a recipient of stimulus spending also went under a few weeks ago. No multiplier there.
What was the multiplier effect when Hillary channeled 4m dollars to a company in Chicago that does political surveys to hire 3 people ? Or was the stimulus just paying it forward for her 2016 campaign?

Regardless of the myopic focus on Solyndra, which did fail for various reasons, it was only a small fraction of the overall ARRA spending (never mind the infintismal amounts also brought up). No Wall Street investment firm bats anywhere near 100% either, so perhaps Solyndra's failure is better looked at in perspective of the overall ARRA success/failure rates. Given that orders of magnitude more massive trillion-dollar failures of Wall Street throughout 2007-09, perhaps a bit more modest tone might be due in accessing ARRA.

I'm certainly not about to defend every dollar of Federal Spending, but trying to tout small individual failures as somehow endemic or representative of all federal spending simply through analogy is itself a weak argument.